Question

Three alternatives investiments are proposed in the table below. Considering a minimum rate of return on investiment of 11%. Maintenance is 16% of invest cost per year. Which is the best investiment?

	1	2	3
Invest cost	25500	31000	33500
annual value saved with investiment	7200	8600	9500
annual operating costs	150	250	300

Answer 1

Project	1	2	3
Invest cost	25500	31000	33500
annual value saved with investment	7200	8600	9500
annual operating costs	150	250	300
annual maintenance cost-16% of initial investment	4080	4960	5360
net income	2970	3390	3840
Percentage rate of return = net income/initial investment	11.65%	10.94%	11.46%
For selection purpose project 1 & 3 would be selected on the basis of rate of return as ROR is greater than minimum required return of 11%But amount the two project A would be selected as its ROR is greater than 3